SHRI MARETI SRINIVASALU,CHENNAI vs. ITO, INTL TAXN WARD-2(2), CHENNAI

The Assessee raised the following grounds of appeal :

The learned Commissioner of Income Tax (Appeals)-16 ought to have seen that the impugned penalty order suffers from non-application of mind and is liable to be quashed in view of settled judicial principles that penalty provisions, being quasi-criminal in nature, must be strictly construed. The penalty order has been passed in a mechanical manner, without independent application of mind and merely on the basis of the assessment order.

The learned CIT(A) erred in law in confirming the penalty without examining whether the mandatory conditions for levy of penalty under section 270A were satisfied. The penalty has been sustained merely on rejection of a legal claim, without any substantive finding of concealment or misreporting.

The learned CIT(A) further erred in treating the rejection of the DTAA claim as "misrepresentation of facts", whereas rejection of a bona fide legal claim, by itself, cannot attract penalty, much less penalty for misreporting under section 270A. The impugned penalty is therefore vitiated for want of legal foundation.

The learned CIT(A) failed to appreciate that making a bona fide claim, even if ultimately rejected, does not amount to misreporting of income.

The learned CIT(A) erred in law and on facts in holding that the appellant's case falls within "misreporting of income" under section 270A(9). There was neither misrepresentation nor suppression of facts, and all material particulars relating to salary, overseas employment, and TDS were fully and truly disclosed. The issue being purely legal and interpretational in nature, invocation of section. 270A(9) is wholly unwarranted.

The learned CIT(A)-16 failed to appreciate that the penalty proceedings are distinct and separate from assessment proceedings and that the burden lies entirely on the Revenue to independently establish concealment or furnishing of inaccurate particulars, which burden has not been discharged in the present case in doing so the learned CIT(A) further failed to consider and apply the judgment of the Hon'ble Madras High Court in CIT v. Gem Granites [296 ITR 522 (Mad)],.

The learned CIT(A) failed to apply the binding ratio of the Hon'ble Supreme Court in CIT v. Reliance Petroproducts (P) Ltd. [322 ITR 158 (SC)], which holds that penalty is not leviable in the absence of false or incorrect particulars. In the impugned case, all particulars were duly disclosed and no finding has been recorded that the same were false or inaccurate.

The learned CIT(A) further failed to consider and apply the judgment of the Hon'ble Madras High Court in CIT v. Gem Granites [296 ITR 522 (Mad)], which clearly holds that penalty under section 271(1)(c) cannot be levied merely because an addition is sustained and that, where the issue involves interpretation of law or two possible views, levy of penalty is impermissible. The impugned penalty is therefore vitiated for want of legal foundation.

The Assessment Unit ought to have seen that the penalty proceedings is deemed to have been initiated only with the issue of notice under section 270(A) and that the said notice should specifically state the reasons for levy of penalty. Failure on the part of the AO to specifically.

The Assessment Unit ought to have seen that the penalty levied for misreporting of income is not only erroneous but also arbitrary and bereft of any reason. In the penalty notice the AO miserably failed to specify the limb "under reporting" of income or "under reporting as a consequence of misreporting" under which the penalty proceedings has been initiated.

The Assessment Unit ought to have seen that the assessment Unit erred in stating in the notice issued u/s.270A that the appellant had "under reported and under reporting as a consequence of misreporting". The learned NFAC ought to have seen that "under reporting" of income and "under reporting as a consequence of misreporting" are two different concepts with clear boundaries and each operate under strict definitions and do not overlap each other and cannot exist simultaneously. While sub section (2) to (6) of 270(A) deals with "under reporting", sub section (9) of section 270(A) deals with "under reporting as a consequence of misreporting" and the same cannot be used interchangeably.

Briefly, the facts of the case are that the appellant is an Individual The Return of Income for the Assessment Year 2019-20 was filed on 22.07.2019 disclosing total income at Rs.40,24,810/-. The same was revised on 03.01.2020 disclosing NIL income. Against the said Return of Income, the assessment was completed by the Assessing Officer vide order dated 20.07.2022 passed u/s.143(3) of the Income Tax Act at a total income of Rs.40,24,810/-. While doing so, the Assessing Officer disallowed the claim for benefit of the provisions of section of DTAA of the Act. The said assessment order was contested before the ld.CIT(A) who had dismissed the assessee’s claim.

On further appeal before the Tribunal also, the appeal filed by the assessee was dismissed.

Now the appellant filed an appeal before the Hon’ble Madras High Court under the provisions of section 260A of the Income Tax Act. The appeal was admitted by Hon’ble Madras High Court. While matter stood thus, the Assessing Officer issued a show cause notice dated 20.07.2022 calling upon the appellant as to why the penalty should not be levied u/s.270A of the act for misreporting of the income. In response to show cause notice, it is requested that the penalty proceedings be kept in abeyance till disposal of the appeal by the Tribunal. After the appeal was disposed by the Tribunal, another show cause notice was issued to the appellant. In response to the show cause notice, it is submitted that the appellant was contemplating filing of appeal before the Hon’ble Madras High Court u/s.260A of the Income Tax Act, therefore, the penalty proceedings be kept in abeyance. However, the Assessing Officer proceeded with levy of penalty u/s.270A of the Act for under reporting of income imposed the penalty of Rs.21,21,482/- vide order dated 24.09.2024.

Being aggrieved by the levy of penalty, an appeal was filed before the ld.CIT(A) who vide impugned order confirmed the levy of penalty for misreporting of income.

Being aggrieved, the appellant is in appeal before this Tribunal.

The ld.Counsel submits that in the assessment order, the Assessing Officer recorded satisfaction for initiation of penalty for misreporting of income. Even, the Ld.CIT(A) had confirmed the levy of penalty for misreporting of income. Drawing the attention to the show cause notice dated 20.07.2022, he submits that the Assessing Officer had not struck-off the relevant limb or column of the under reporting/misreporting of income, failure to do so vitiates the penalty proceedings. In this connection, he relied on the decision of Co-ordinate Bench of this Tribunal :  M/s.The Presidency Club Vs. DICT in ITA No.222/CHNY/2024 dated 21.08.2024 of ITAT Chennai Benches.  Deepak Kumar Todi Vs. DDIT in ITA No.1918/KOL/2017 DATED 16.04.2019 of ITAT Kolkata Benches.  CIT Vs. Reliance Petroproducts (P.) Ltd 322 ITGR 158 (SC) dated 17.03.2010.

On the other hand, Ld.Sr.DR opposed the above submissions and submits that the Assessing Officer levied penalty for under reporting of income as a consequence of misreporting of income.

We heard rival submissions and perused the material available on record. The issue that arises for our consideration is whether the ld.CIT(A) was justified in confirming the levy of penalty u/s.270A of the Income Tax Act for misreporting of income. Admittedly, the addition made by the Assessing Officer in the assessment was sustained by the Tribunal. The appellant had preferred an appeal before the Hon’ble Madras High Court against the order of Tribunal confirming the addition. The Assessing Officer had levied penalty for under reporting of income as a consequence of misreporting of income. We had carefully perused the assessment order. The Assessing Officer recorded a satisfaction that penalty proceedings were initiated in respect of addition made by the Assessing Officer for under reporting of income as consequence of the misreporting of income. Accordingly, a show cause notice was also issued u/s.274 r.w.s 270 of the Income Tax Act on 20.07.2022. We had carefully perused the show cause notice 20.07.2022. ON careful perusal of the show cause notice, it would be clear that there is not even a whisper as to which limb of section 270A attracted and how the ingredients of sub-section 9 of section 270A are satisfied!

In this connection, the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP(supra) held as under : “…………………………..This legal position is strengthened by the decision of the Hon'ble Delhi High Court in the case of Prem Brothers Infrastructure LLP (supra), where the Hon'ble Delhi High Court by following the earlier decision in the case of Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT, International Taxation in WP (C) No.5111 of 2022 dated 28.03.2022, held that in view of vague notice without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub-section 9 is specified, initiation of penalty u/s.270A of the Act for 'misreporting of income' is not only erroneous, but also arbitrary and bereft of any reason and consequently, penalty order passed by the AO, cannot be sustained. The relevant findings of the Hon'ble Delhi High Court are as under:

In the result, appeal filed by the Assessee stands allowed. Order pronounced in the open Court on 9th July, 2026.